Untitled Texas Attorney General Opinion

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
July 9,2009
The Honorable David P. Weeks Opinion No. GA-0725
Walker County Criminal District Attorney
1036 11th Street Re: Whether certain reservations and assignments in
Huntsville, Texas 77340 deeds executed by a member of a city council operate
to exclude particular property from tax increment
financing under Tax Code section 312.204(d)
(RQ-0777-GA)
Dear Mr. Weeks:
You inform us that in 2004, the City of Huntsville (the "City") created a tax increment
financing reinvestment zone pursuant to the Tax Increment Financing Act, chapter 311 of the Tax
Code. 1 You relate that an individual who was then and who is now a city council member owned
approximately a seven percent undivided interest in certain real property located in the zone. See
Brief at 1, 4. In 2008, you tell us, the council member "deeded" his interest to his children, but
"reserved the net proceeds from any future sale of the property and transferred and assigned those
proceeds to the City ... to be used for the renovation, expansion and/or construction of the Public
Library in memory" of a relative of the council member. Id at 1. You first ask whether the
reservation "operate [s] to exclude the property from tax increment financing under Tax Code section
312.204(d)," a provision in the Property Redevelopment and Tax Abatement Act. Id at 2. This
office does not construe particular contracts or contract provisions. See, e.g., Tex. Att'y Gen. Op.
No. GA-0302 (2005) at 2. However, your question can be answered by addressing the legal issue
of whether a valid reservation of sale proceeds of real property conveyed retains to the grantor
ownership of the property under Tax Code section 312.204(d). Thus, we answer your question
generally without expressing an opinion with respect to the particular deeds or transactions about
which you ask. See id
The Tax Increment Financing Act, chapter 311 of the Tax Code, authorizes an eligible city
to establish a qualifying area as a reinvestment zone and finance authorized projects in the zone to
promote its development or redevelopment. See TEx. TAX CODE ANN. §§ 311.003(a), .011 0/emon
2008). The Property Redevelopment and Tax Abatement Act, chapter 312 of the Tax Code,
authorizes an eligible city to enter into a tax abatement agreement with an owner of taxable real
property, or lessee of tax-exempt real property, in a reinvestment zone to exempt from taxation a
ISee Brief attached to Request Letter at 1 (available at http://www.texasattomeygeneral.gov).
The Honorable David P. Weeks - Page 2 (GA-0725)
portion of the value of the real property, tangible personal property located on the real property, or
both. See id. § 312.204(a). A provision in the Property Redevelopment and Tax Abatement Act,
section 312.204(d), excludes all real property that is owned by a member of a city's governing body
not only from tax abatement under chapter 312, but also tax increment financing under the Tax
Increment Financing Act, chapter 311: "[P]roperty that is in a reinvestment zone and that is owned
or leased by a person who is a member of the governing body of the municipality ... is excluded
from property tax abatement or tax increment financing." Id. § 312.204(d); see also id. (excepting
property subject to tax abatement or tax increment financing before the property owner becomes a
member of the governing body).
Chapter 312 does not define the terms "own" and "owner" or indicate the Legislature's intent
in enacting section 312.204(d). Texas courts have generally defined "owner" under the Tax Code
as the person holding legal title to the property or holding an equitable right to obtain legal title to
the property. See Childress County v. State, 92 S.W.2d 1011, 1015 (Tex. 1936); Travis Cent.
Appraisal Dist. v. Signature Flight Support Corp., 140 S.W.3d 833,839-40 (Tex. App.-Austin
2004, no pet.); Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495,497
(Tex. App.-Dallas 2001, pet. denied). Attorney General Letter Opinion 98-001 specifically
construed the terms "own" and "owner" in chapter 312 to "refer to a property interest that includes
at least some degree of control over the property" but not to "embrace a mere beneficial or equitable
interest in property completely lacking such control." Tex. Att'y Gen. LO-98-001, at 3.
Under the general law, execution and delivery of a deed conveys to the grantee title to the
transferred property. See Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257,261 (Tex.
1975). Thus, upon such execution and delivery, the grantee is vested in the property and entitled to
the proceeds upon a sale of that property. See id. A "reservation" in a deed operates for the benefit
of the grantor and generally retains in the grantor his interest to the extent provided. See York v.
Kenilworth Oil Co., 614 S.W.2d 468, 471 (Tex. Civ. App.-Waco 1981, writ refd n.r.e); see also
Cooper v. United States, 322 F. Supp. 2d 733, 737 (E.D. Tex. 2004) ("An estate in the land less than
the fee simple as well as an interest in land not amounting to an es1a;te known to the law may be
reserved. ") (citing Woodmen ofthe World Camp No. 1772 v. Goodman, 193 S.W.2d 739 (Tex. Civ.
App.-Dallas 1945, no writ»). We find no Texas case that addresses specifically a reservation of
sale proceeds by the grantor or the validity of such an arrangement.
Assuming the validity of a reservation of the sale proceeds of the property conveyed, the
issue here is whether such a reservation retains to the grantor ownership of the property for the
purposes of section 312.204(dV By definition, a reservation of the sale proceeds retains to the
grantor only an ownership interest in the proceeds if and when the property is sold. Such a
reservation does not by its terms retain to the grantor legal or equitable title to the property itself.
See The Peoples Gas, Light, & Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208,212
(Tex. App.-Texarkana 2008, no pet.) (discussing the several Texas decisions to date defining
2We do not believe the assignment of the proceeds is dispositive of the issues raised by.your request for the
reasons explained in note 3. See infra note 3.
The Honorable David P. Weeks - Page 3 (GA-0725)
"owner" under the Tax Code as the person holding legal or equitable title to the property). Nor does
such a reservation retain to the grantor other elements of property ownership recognized under the
common law-the right to control and dispose ofthe property. See Mann v. Risinger, 423 S.W.2d
626,632 (Tex. Civ. App.-Beaumont 1968, writ refd n.r.e.) ('''Property in a thing consists not
merely in its ownership and possession, but in the unrestricted right of use, enjoyment and
disposal."') (citation omitted); Tex. Att'y Gen. LO-98-001, at 3 (indicating that "owner" under
chapter 312 might include a person with control over the disposition of property). Finally, we find
no Texas authority indicating that a reservation in a deed of the sale proceeds retains to the grantor
title or ownership of the property conveyed or that such a reservation constitutes a recognized
interest or estate in the property. Cf Cooper, 322 F. Supp. 2d at 737 ("[I]fthe reservation does not
reserve to the grantor a definite estate in the land, the deed may be construed as a grant of the fee
simple, subject to a mere contractual right.") (citing Emerson v. Pate, 165 S.W. 469 (Tex. Crim.
App. 1914))). Thus, while there is no Texas authority directly on point, because a reservation of the
sale proceeds does not retain to the grantor legal or equitable title to the property or the right to
control or dispose of the property, we conclude that such a reservation does not as a matter of law
retain to the grantor ownership of the property. Cf Lowe v. Mich. Fire & Marine Ins. Co., 236
S.W.2d 168, 170 (Tex. Civ. App.-Beaumont 1950, writ refd) (holding that a reservation of a
vendor's lien in a deed did not preclude change in ownership); Woodmen, 193 S.W.2d at 741
(holding that building conveyed by grantor "became property of [the grantee county] subject to
reservations of deed" of the second floor for plaintiffs' use).
We recognize that an ownership interest in the sale proceeds of the property conveyed is a
valuable interest, and a reservation of such an interest by the grantor appears "inconsistent with the
terms and ostensible object" of a conveyance. Baldwin v. Peet, Sims & Co., 22 Tex. 708, 718 (1859)
(discussing fraudulent conveyances to avoid payment to creditors and indicating that deed
reservations are "sustained only when they are consistent with the objects of the deed") ..
Additionally, a grantor who retains such an interest retains a direct pecuniary interest in transactions
relating to the property, including tax increment financing. 3 However, Tax Code section 312.204(d)
does not prohibit a member of a city's governing body from having any "interests" related to the
property subject to tax increment financing. Ifthe Legislature had intended to broadly prohibit any
3you appear to argue that the irrevocable assignment of the sale proceeds to the City for the improvement of
a public library terminates any or all of the council member's interests. See Brief at 4. First, until the property is sold,
the grantor arguably retains legal title to the anticipated proceeds and, thus, his interest. Cf Univ. o/Tex. Med Branch,
v. Allan, 777 S.W.2d 450, 453, 454 (Tex. App.-Houston [14th Dist.] 1989, no writ) (holding that an individual who
had assigned her insurance benefits retained legal title to the proceeds of the insurance contract until the proceeds were
paid). Second, even though the assigned proceeds are to be used for a public rather than a private purpose, arguably the
council member still enjoys the benefits of his ownership of the proceeds by directing how they are used, i.e.,
improvement of a library in memory of a relative. "[W]here the taxpayer diverts the payment from himself to others as
a means of procuring satisfaction of his economic desires, he has in effect enjoyed the fruits of his investment as though
he had collected the proceeds himself." Floyd v. Scofield, 193 F.2d 594, 596 (5th Cir. 1952) (considering whether a
corporation by assignment to its stockholders can escape taxation on the proceeds of the sale of corporate assets). Of
course, once the property is sold and the proceeds paid to the City, the question of the effect of the assignment, as well
as of the reservation, becomes moot.
The Honorable David P. Weeks - Page 4 (GA-0725)
interests, it would have made that intent plain as it has done in other statutes. 4 See Tex. Att'y Gen.
LO-98-00 1, at 3.
Accordingly, we think it unlikely that a member of a governing body who in a deed
conveying property reserves to himself the sale proceeds of the property, if and when the property
is sold, is the owner of the property under section 312.204(d) by virtue of the reservation. Thus, a
reservation of the proceeds, by itself, does not appear to operate to exclude property from tax
increment financing under section 312.204(d). Given this conclusion, it is unnecessary to address
your second question as to whether the entire tract or only the council member's "portion of the
tract" is excluded by operation of the reservation and assignment. 5 See Brief at 2.
4See, e.g., TEX. ALCO. BEV. CODE ANN. § 5.05(a)(3) (Vernon Supp. 2008) (prohibiting Alcoholic Beverage
Commission member from having a "pecuniary interest in an alcoholic beverage business"); TEX. ELEC. CODE ANN. §§
121.002, 122.03 5(d), 122. 092(d) (Vernon 2003) (prohibiting Secretary ofState and voting system examiners from having
"a pecuniary interest in the manufacturing or marketing" of a voting system); TEx. Loc. GOV'T CODE ANN. §§
321.027(a), 322.026(a) (Vernon 2005) (prohibiting member ofa county or joint county board of park commissioners
from acquiring "a direct or indirect pecuniary interest" in any park "improvements, concessions, equipment, or
business"); TEX. TRANsp. CODE ANN. §§ 453.055,457.054 (Vernon 2007) (prohibiting employees of municipal and
county transit departments from having a pecuniary interest in, or receiving benefits from, agreements to which the transit
departments are a party).
5you do not ask and we do not address the application of chapter 171 of the Local Government Code, which
requires a public official having a "substantial interest ... in real property" to abstain from participating in a vote or
decision on the matter if it ''will have a special economic effect on the value of the property, distinguishable from its
effect on the public." See TEX. Loc. GOV'TCODEANN. § 171.004(a)(2) (Vernon 2008).
The Honorable David P. Weeks - Page 5 (GA-0725)
SUMMARY
Tax Code section 312.204(d) excludes real property owned by
a member of a city's governing body from tax increment financing.
It is unlikely that a city council member who in a deed conveying real
property reserves to himself the sale proceeds of the property, ifand
when the property is sold, is the owner of the property under section
312.204(d) by virtue ofthe reservation. Thus, such a reservation does
not by itself appear to operate to exclude property from tax increment
financing under section 312.204(d).
Attorney General of Texas
ANDREW WEBER
First Assistant Attorney General
JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
SheelaRai
Assistant Attorney General, Opinion Committee